Economic Survey 2014-15 Part-1

1)Benefits of cash transfer: Faster delivery of service and reduced leakage and therefore fiscal savings.Example:In Andhra Pradesh, MNREGA and social security payments made through AAdhar-lined ban accounts.Households received payments on average 10 days faster and leakage reduced by 10.8 percentage points.

2)Eliminating or phasing down subsidies in neither desirable nor feasible unless accompanied by other forms of support to cushion the poor and vulnerable and enable them to achieve their economic aspirations.The JAM Number trinity-Jan Dhan Yojana, Aadhar and Mobile numbers-allows the state to offer this support to poor households in a targeted and less distorted way.

3)Harmful effects of subsidies:i) Price subsidies are often regressive i.e. a rich household benefits more from the subsidy than a poor household.ii)Price subsidies can distort markets in ways that ultimately hurt the poor-subsidies can distort the incentives of consumers and producers and result in misallocation of resources.eg:high MSPs,freight tarrifs iii)leakage seriously undermine the effectiveness of product subsidies-leakages not only have the direct costs of wastage,but also the opportunity cost of how the government could otherwise have deployed those fiscal resources.

4)Strategies for fiscal framework: The medium term fiscal strategy should be based on two pillars.First, the fiscal deficit should be reduced over the medium term to the established target of 3 percent of GDP.Second, efforts to achieve this objective should be based on firm control over expenditures, most notably by eliminating leakages in subsidies and social expenditures.Further, switching from public consumption to public investment will mitigate long-term inflationary pressures because the later will add to capacity and boost the aggregate supply potential of the economy. India should move towards the golden rule of eliminating revenue deficits and ensuring that, over the cycle, borrowing is only for capital formation.